Hayne fallout: a chance to rethink broker commissions
The Federal Government is set to review general insurance broker commissions and non-monetary benefits in three years after Commissioner Kenneth Hayne made clear that he is generally opposed to financial services regime exemptions and carve-outs.
And while he hasn’t directly called for a ban on broker commissions, the National Insurance Brokers Association (NIBA) says it’s time “to think about the future of broking and broking remuneration”.
Broker commissions were not highlighted as an issue during the hearings, but Commissioner Hayne says in his final report released late yesterday that they should be part of a review of financial advice scheduled to start in three years.
“The commissioner is keen to simplify the overall legislative framework to, by and large, remove exemptions, carve-outs and qualifications,” NIBA CEO Dallas Booth told insuranceNEWS.com.au today.
“Because there is no basis for recommending reform on [broker] commissions he hasn’t, but he is interested in the over-arching approach of removing exemptions wherever possible.”
The general insurance conflicted remuneration carve-out was achieved as part of the 2012 Future of Financial Advice (FOFA) reforms.
The proposed advice review, in consultation with the Australian Securities and Investments Commission (ASIC), will be delayed to 2022 to allow time for a range of advice and product reforms to take effect. The exemptions for general insurance products, consumer credit insurance and non-monetary benefits will be considered then.
“By the time of the review referred to in Recommendation 2.3, these exemptions from the ban on conflicted remuneration will have been in place for almost 10 years,” Commissioner Hayne says.
“In my view, if the exemptions are still in place at that time, it will be appropriate for ASIC to consider whether each of them remains justified.”
Mr Booth says there are strong arguments in favour of the general insurance exemption continuing, but there is a lot of distrust around commission structures in general due to experiences in other areas of financial services.
“The review in three years gives us a chance to think about the future of broking and broking remuneration, and that is something I will be suggesting to the NIBA board,” he said.
“There is time to give some very careful reflection as to whether we want to argue in favour of the status quo or move to a different position.”
Both the Government and the Labor Party have said they will adopt the Hayne royal commission recommendations, signalling the proposed review will go ahead whoever wins this year’s election.
The royal commission proposal also comes after an Australian Competition and Consumer Commission (ACCC) interim report on northern Australian insurance recommended extending the conflicted remuneration ban to brokers.
Mr Booth says the Government’s acceptance of the royal commission recommendation should also put the ACCC proposal on hold until that time.
NIBA is continuing to review other proposals in the Hayne report and will clarify whether a recommendation for mandatory individual financial adviser registration extends to brokers.
Commissioner Hayne’s plan to reduce carve-outs is also reflected in a recommendation to end the claims-handling exemption from the definition of financial services, allowing greater ASIC scrutiny.
He says that where possible conflicts of interest should be eliminated, rather than “managed”.
Insurer expectations that the Banking Executive Accountability Regime (BEAR) would eventually be introduced more widely were realised, with Commissioner Hayne proposing that it should apply to other institutions regulated by the Australian Prudential Regulation Authority.
He has given the new Australian Financial Complaints Authority (AFCA) greater clout, recommending legislative changes to ensure firms make available all relevant documents and records relating to dispute issues.
AFCA will be able to consider legacy disputes going back to January 2008, and the royal commission has recommended a compensation scheme of last resort to ensure complainants are paid.
Mr Booth says the royal commission has highlighted the need for high standards across the financial services sector.
“Clearly the level of tolerance for misconduct and for breaches is much reduced from now on and there is a much higher expectation on firms to identify, report and deal with misconduct and take steps to make sure it is not repeated,” he said.
“That is a really strong message we will be putting out to our members as well.”